– Tempur-Pedic Mattress Units Grew 36% in North America in the Fourth Quarter

– Company Settled All Litigation with Mattress Firm

PR NewswireLEXINGTON, Ky., Feb. 14, 2019 /PRNewswire/ — Tempur Sealy International, Inc. (TPX) announced financial results for the fourth quarter and year ended December 31, 2018. The Company also issued financial guidance for the full year 2019.

FOURTH QUARTER 2018 FINANCIAL SUMMARY⁽¹⁾

• Total net sales increased 7.1% to $676.1 million as compared to $631.4 million in the fourth quarter of 2017. On a constant currency basis⁽²⁾, total net sales increased 8.2%, with an increase of 9.1% in the North America business segment and an increase of 5.2% in the International business segment.
• Gross margin under U.S. generally accepted accounting principles (“GAAP”) was 41.9% as compared to 42.4% in the fourth quarter of 2017. Adjusted gross margin⁽²⁾ was 42.4% in the fourth quarters of 2018 and 2017.
• GAAP operating income decreased 29.7% to $57.9 million, or 8.6% of net sales, as compared to $82.4 million, or 13.1% of net sales, in the fourth quarter of 2017. Operating income in the fourth quarter included $21.2 million of charges associated with a wholesale customer bankruptcy and other adjustments. Adjusted operating income⁽²⁾ increased 9.0% to $90.8 million, or 13.4% of net sales, as compared to $83.3 million, or 13.2% of net sales, in the fourth quarter of 2017.
• GAAP net income decreased 74.6% to $12.3 million as compared to $48.4 million in the fourth quarter of 2017. Adjusted net income⁽²⁾ increased 4.0% to $49.7 million as compared to $47.8 million in the fourth quarter of 2017.
• Earnings before interest, tax, depreciation and amortization (“EBITDA”)⁽²⁾ decreased 16.2% to $77.9 million as compared to $93.0 million for the fourth quarter of 2017. Adjusted EBITDA⁽²⁾ increased 5.5% to $117.9 million as compared to $111.8 million in the fourth quarter of 2017.
• GAAP earnings per diluted share (“EPS”) decreased to $0.22 as compared to $0.88 in the fourth quarter of 2017. Adjusted EPS⁽²⁾ increased 3.4% to $0.90 as compared to $0.87 in the fourth quarter of 2017.
• The Company ended the fourth quarter of 2018 with total debt of $1.7 billion and consolidated funded debt less qualified cash⁽²⁾ of $1.6 billion. Leverage based on the ratio of consolidated funded debt less qualified cash to adjusted EBITDA⁽²⁾ was 3.87 times for the trailing twelve months ended December 31, 2018.

FULL YEAR 2018 FINANCIAL SUMMARY⁽¹⁾

• Total net sales increased 0.1% to $2,702.9 million from $2,700.6 million in 2017.
• GAAP gross margin was 41.5% in both 2018 and 2017. Adjusted gross margin⁽²⁾ was 41.9% as compared to 42.0% in 2017.
• GAAP operating income was $256.3 million, or 9.5% of net sales, as compared to $295.5 million, or 10.9% of net sales, in 2017. Adjusted operating income⁽²⁾ was $307.6 million, or 11.4% of net sales, as compared to $325.3 million, or 12.0% of net sales, in 2017.
• GAAP net income was $100.5 million as compared to $151.4 million in 2017. Adjusted net income⁽²⁾ was $163.0 million as compared to $179.2 million in 2017.
• GAAP EPS was $1.82 as compared to $2.77 in 2017. Adjusted EPS⁽²⁾ was $2.96 as compared to $3.28 in 2017.

(1) All amounts presented for 2017 reflect reclassifications to previously reported amounts to adjust for discontinued operations.
(2) This is a non-GAAP financial measure. Please refer to “Non-GAAP Financial Measures and Constant Currency Information” below.

KEY HIGHLIGHTS

Tempur Sealy International, Inc. Chairman and CEO Scott Thompson commented, “In 2018, we successfully launched our new Tempur-Pedic Adapt line of products to expand our market share in the competitive $2000 to $3000 price band. Going into 2019, we look forward to completing the North American Tempur-Pedic rollout with our highly anticipated Tempur Breeze line of products, as well as, launching our entirely new line of Stearns & Foster products. We believe these launches in 2019 will solidify our market position in premium bedding. We believe our focus on delivering high quality bedding products, improving the reach and effectiveness of our marketing, expanding our omni-channel strategy, and pursuing on-going productivity initiatives sets the company up for future earnings growth.”

(1) All amounts presented for 2017 reflect reclassifications to previously reported amounts to adjust for discontinued operations.
(2) This is a non-GAAP financial measure. Please refer to “Non-GAAP Financial Measures and Constant Currency Information” below.

Business Segment Highlights

The Company’s business segments include North America and International. Corporate operating expenses are not included in either of the business segments and are presented separately as a reconciling item to consolidated results.

North America net sales increased 8.7% to $527.6 million as compared to $485.5 million in the fourth quarter of 2017. On a constant currency basis⁽²⁾, North America net sales increased 9.1% as compared to the fourth quarter of 2017. GAAP gross margin was 39.2% as compared to 39.8% in the fourth quarter of 2017. GAAP operating margin was 9.5% as compared to 13.7% in the fourth quarter of 2017.

North America net sales through the wholesale channel increased $36.1 million, or 8.0%, to $487.2 million. North America net sales through the direct channel increased $6.0 million, or 17.4%, to $40.4 million, as compared to the fourth quarter of 2017, driven primarily by growth from expanded retail stores.

North America adjusted gross margin⁽²⁾ was flat as compared to the fourth quarter of 2017. This was driven primarily by favorable pricing and brand mix, which were offset by commodity cost inflation, unfavorable Tempur product mix and increased floor model expenses. North America adjusted operating margin⁽²⁾ improved 40 basis points as compared to the fourth quarter of 2017. The improvement in adjusted operating margin was driven by operating expense leverage.

International net sales increased 1.8% to $148.5 million as compared to $145.9 million in the fourth quarter of 2017. On a constant currency basis⁽²⁾, International net sales increased 5.2% as compared to the fourth quarter of 2017. Gross margin was 51.5% as compared to 51.1% in the fourth quarter of 2017. GAAP operating margin was 21.6% as compared to 25.0% in the fourth quarter of 2017.

International net sales through the wholesale channel decreased $4.6 million, or 3.7%, to $119.3 million and net sales through the direct channel increased $7.2 million, or 32.7%, to $29.2 million as compared to the fourth quarter of 2017.

International adjusted gross margin⁽²⁾ improved 60 basis points as compared to the fourth quarter of 2017. The improvement was driven primarily by the change in classification of royalty income due to the adoption of new revenue recognition guidance and operational improvements. International adjusted operating margin⁽²⁾ declined 20 basis points as compared to the fourth quarter of 2017. The decline was driven by the change in classification of royalty income due to the adoption of new revenue recognition guidance, offset by favorable operating expense leverage, improvement in gross margin and improved performance by the Asia joint venture.

Corporate operating expense increased to $24.1 million as compared to $20.5 million in the fourth quarter of 2017.

https://seekingalpha.com/pr/17412406-tempur-sealy-reports-fourth-quarter-full-year-2018-results